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Chabahar Port: Unlocking Afghanistan’s Potential

By Asha Sawhney

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The Trump administration’s plans to withdraw troops from Afghanistan did not come in the wake of improved conditions in the country. The security and economic outlook remains bleak after decades of civil war and an ongoing power struggle between the government and the Taliban. Another decision by the Trump administration, however, brings hope in an otherwise intractable situation. In November 2018, Secretary of State Mike Pompeo announced that economic activity related to the development of the Chabahar port would be exempted from certain reinstated sanctions from the Iran Freedom and Counter-Proliferation Act of 2012.1 Chabahar is Iran’s only oceanic port, but the Islamic Republic only recently began to bring it to its full potential. The port has particular promise as a means of access to the Indian Ocean for landlocked Afghanistan. Iran and India are the two nations financing this large-scale project.2 The U.S. government has maintained tacit approval for the two countries’ investments in Chabahar, for which it only occasionally announced its explicit approval. If the Trump administration seeks to reduce U.S. military burden in Afghanistan, it must pledge full support for this regional investment in the Afghan economy.
If the Trump administration seeks to reduce U.S. military burden in Afghanistan, it must pledge full support for this regional investment in the Afghan economy.
Chabahar Port, located off the Gulf of Oman in Iran’s southeastern province of Sistan-Baluchistan, is the lifeline Afghanistan needs to reinvigorate its trade potential.3 The Trump administration showed that the United States is well aware of this fact when it specifically cited bolstering Afghanistan’s trade potential as its reason for granting a sanctions exemption reimposed on Iran after the United States withdrew from the Joint Comprehensive Plan of Action (JCPOA), commonly known as the Iran Deal.4 The Chabahar port and corresponding Chabahar city are in Sistan-Baluchistan, a province that spans both Iran and Afghanistan. The two countries seek to complete a multimodal system that will more efficiently connect Kabul to the port and in turn reduce reliance on Pakistan.5 This will significantly boost trade capacity because, as it stands, Pakistan does not allow India overland transit access, a major obstacle for critical trade between Afghanistan and India.6

Without Chabahar, Afghanistan must depend on Iran’s other major shipping site, Bandare Abbas, which manages 70 percent of the country’s seaborne traffic. Located in the Persian Gulf, Bandare Abbas does not have direct access to the Indian Ocean. Trade must first pass through ports in the United Arab Emirates to be unloaded onto smaller ships.7 Heightened tensions between Iran and its neighboring Gulf states make this a tenuous arrangement. Furthermore, the Strait of Hormuz, the 21-mile strip of water connecting the Persian Gulf to the ocean, is a chokepoint vulnerable to a variety of potential security and environmental disruptions.
Despite its clear strategic advantage, political strain has put numerous obstacles in the way of developing Chabahar Port. Iran set out its initial plans for the trade hub in 1973, when the country’s then monarch, Reza Shah, announced an $8 billion investment in the project, but the OPEC oil crisis of the 1970s halted the plan. After the Iran-Iraq War, the Islamic Republic had a renewed interest in lowering its dependence on other Gulf countries and relaunched its development plans. Iran recruited Indian firms in the 1990s to lead the project, but increased sanctions by the United States made only a partial completion possible. In 2012, after the initial repeal of sanctions under the JCPOA, India invested $500 billion.8 The port has faced many bouts of uncertainty, but with the reinstatement of sanctions in November 2018, the United States holds the decisive power over the port’s future.9 As a close ally, India is particularly wary of maintaining good relations with the United States and responsive to U.S. influence.

India’s close relationship with the United States and Israel make it an unusual ally to Iran but simultaneously the ideal actor to oversee a responsible economic partnership between Iran and Afghanistan. U.S. government support for a prolonged military presence in Afghanistan is on the decline, and the distribution of U.S. aid often requires military oversight. It is in the United States’ best interest to bolster the success of Chabahar Port as a means of responsibly reducing U.S. aid to Afghanistan in favor of regional cooperation and increased investment. Afghanistan has no prospects for stable security without greater avenues for economic empowerment.

Afghanistan cannot be forced to rely on its capricious relationship with Pakistan in order to secure resources. Pakistan’s alleged support for the Taliban render it a disagreeable ally for Kabul, and Pakistan-India tensions stand in the way of Afghanistan increasing its trade with India, the regional economic powerhouse and reliable ally. Prior to outright barring Indian access to overland trade routes, Pakistan imposed regulations in the hopes of encouraging Afghanistan to prioritize Pakistani imports and limit Kabul’s cooperation with New Delhi. At its peak between 2014 and 2015, Afghanistan’s trade with Pakistan was $2.7 billion, but excessive documentation requirements at Pakistani ports as well as unpredictable closings at the Chaman and Torkham border crossings led the Afghan government to reassess its options.10 Ultimately, the series of stringent regulations backfired and trade with Pakistan fell to $500 million in 2018 as Afghanistan shifted trade to Iranian ports at both Bandare Abbas and Chabahar, where 80 percent of Afghanistan’s cargo traffic now lies.11

Indian Ocean access stands to transform trade entirely for Afghanistan by cutting cost in an unprecedented way and allowing for efficient passage of critical resources. Iran and India’s construction of a multimodal system is in various stages of completion, but overall the routes provide a 60 percent reduction in shipping costs and a 50 percent reduction of shipment time between India and Central Asia.12 Even without the completion of the highway and rail system between Chabahar and the Iran-Afghanistan border, India successfully shipped 110,000 tons of wheat and 2,000 tons of pulses to Afghanistan in 2018, as a part of its promise to deliver a total of 1.1 million tons of food supply on a grant basis.13 These shipments from India will maintain the supply of Afghanistan’s strategic grain reserves that provide resources for impoverished citizens and emergency resources in times of crisis.14 Trade from Chabahar to Afghanistan has thus far been mostly of non-sanctionable goods such as agricultural products and medicine.15 Afghan traders have responded with enthusiasm to Chabahar’s reliable trade and transit offerings. Traders are looking forward to a forthcoming shipping line that will fly Afghanistan’s flag and feel that the more cargo they can shift to Chabahar, the better. Iran and India aimed to give as lucrative a deal as possible to Afghan traders and initially provided a 30 percent discount in customs tariffs, 50 acres of land for Afghan investment, and free cooling storage facilities.16,17 In 2017, the offer was raised to an 80 percent discount in export tariffs.18 Already, Afghan traders make up 165 of the 500 companies registered with the Chabahar Free Zone authority.19 The Iranian government has ambitious goals for Chabahar, with an intended nominal capacity of 86 million tons by 2024, and Afghanistan intends to have a considerable stake in these operations.20

The U.S. government granted India a waiver to the latest series of Iranian sanctions in order to ensure its punitive actions against the Islamic Republic will not impede economic reconstruction in Afghanistan.21 Yet, U.S. support remains unpredictable. The port offers economic benefits to Iran, a difficult reality for the Trump administration as it seeks to economically isolate the Islamic Republic. The administration follows each expression of support with a reminder that Washington can revoke its support at any time. While reviewing India’s eligibility for a sanctions waiver, the Trump administration stated that it does not want to interfere with “legitimate business” between India and Iran.22 After the announcement of the waiver, John Bass, U.S. envoy to Afghanistan, warned Afghan officials that sanctions exemptions for trade through the Chabahar Port will only continue if traders remain careful to not violate rules against business involving those on the list of sanctioned regime officials.23

Afghanistan’s strongest prospect for a brighter future is greater trade through the Chabahar Port. The consequences from a lack of legitimate trade routes in and out of Afghanistan have been grave. As of 2017, the illegal opium trade is up to 32 percent of Afghanistan’s official GDP. Insurgent groups including the Taliban generated an estimated $116-184 million in profit in 2017 alone, while the country’s legal exports of goods and services amounted to only 7 percent of GDP.24 Opioid usage fueled by this illicit trade has sparked an addiction crisis across large parts of South Asia, particularly in northern India.25 With little improvement on dampening illegal trade, the U.S. government cannot compound the situation with a tepid approach towards trade through Chabahar, particularly as it makes the drastic decision to halve the presence of U.S. troops in Afghanistan.26
The Trump administration must have confidence in Chabahar Port and India’s presence in managing sanctions compliance. India depends on its security and economic ties with the United States, its most powerful ally, and simultaneously cannot afford to sacrifice its Iranian oil imports. Its dual dependence on the United States and Iran make it the ideal actor and mitigating force to keep Afghanistan in-line with sanction stipulations. The Trump administration can express clear support for this regional attempt to secure a new path forward for Afghanistan by signing a memorandum of understanding (MoU) with India that affirms U.S. support for India’s involvement in Chabahar. India has already signed a similar MoU with Iran and Afghanistan to ensure continued cooperation for the development of the Chabahar Port.27 The United States must follow suit to prove its commitment to stability and economic growth in Afghanistan as the country prepares for the withdrawal of U.S. troops.

Asha Sawhney is a former research intern with the Middle East Program at CSIS.

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